The ASA BlogLearn the Steps to the Retirement Dance!

The 6 Biggest Mistakes Retirees Make

(and how to avoid them!)

1) Retirement Cash Flow Cannot Fund Lifestyle

Among the biggest mistakes retirees make is not adjusting their expenses to their new budget dependent life. Those who have worked for many years usually find it hard to reconcile with the fact that food, clothing and entertainment expenses should be adjusted because they are no longer earning the same amount of money as they were while in the work force. For example, you might need to do a little less dining out and learn to enjoy more home cooked meals.

Many retirees also tend to forget to take into account healthcare and long term care costs that usually come into play as a person ages. A proper retirement income plan that includes financial vehicles designed to produce lifetime income can help significantly bridge the retirement income gap, and offer inflation protection along with peace of mind.

2) Failing to Move to More Conservative Investments

Once you have retired, you can’t afford large negative swings in your savings. You regularly hear financial advisors recommending a long term strategy and touting the strategy of leaving money in the market regardless of the ups and downs. That’s because over time, the market, while very volatile at times, has historically ended up rising in the long term. When you retire however, you have to think more short term as you will need to access the cash. It’s still probably smart to keep some money in more aggressive growth investments, but not nearly at the level you did when you were younger.

3) Applying for Social Security Too Early

Just because you are already eligible to apply for Social Security at 62 does not mean you should. If you start taking benefits at age 62 will get you about 25% less than what you would get on your full retirement age of 66. You will also get at least 32% less than if you wait until age 70.

If you have the means to pay your bills and are healthy, try to delay your application for retirement benefits for a few years more. The benefit increase is maxed out by 70 years old and will not increase any further, so that’s the target age you should shoot for.

4) Not Being Effective Tax-Wise During Retirement

Having multiple retirement accounts may sound ideal but you have to remember that each retirement account is being taxed differently. If you have not factored taxes into your retirement distribution plan, you could end up paying more taxes that you actually have to.

Finding the most cost-efficient way of being taxed during retirement is a complicated manner so you might want to make sure that you have a trusted advisor to help you along the way.

5) Being House-Rich but Cash-Poor

People often pay for their mortgage for most of their life and, by the time they retire, end up with a lot of equity in the home and with little cash left. While houses appreciate in value, the costs of upkeep including taxes, utilities, services, repairs and maintenance is too much for a retiree to handle. Once you have decided to get out of the work force, it is assumed that your children should have already moved out of your house. You can downsize your living expenses by selling your house and moving in to a smaller home that you can afford. You can also invest the remaining money on more predictable income in order to support your new retirement lifestyle. If you are still working, then be sure to pay yourself first and max out your savings before you consider paying down your mortgage. Hitting your retirement savings goals is more important than accelerating your mortgage pay off date.

6) Not Staying Active Socially and Physically

Possibly one of the worst things you can do when you retire is become reclusive and inactive. It’s important to maintain social connections and frequently enjoy the company of friends and family or join social groups and activities that will enable social interaction with peers. The mind is like a muscle – if it is not exercised, its capabilities will fade. So in addition to continuing some sort of regular exercise habit, seniors should also exercise their brains. Reading books, solving puzzles and just simply engaging in conversation are all great ways to keep the brain sharp and functioning well into later life. Becoming reclusive and spending a lot of time in front of the television, while on occasion may offer relaxation, should not monopolize your time. Keeping active will not only help keep you mentally sharp and physically healthy, but will also elevate your mood and help you be happy well into your golden years!